By Scott Murdoch

SYDNEY Westpac Banking Corp, Australia's third largest bank by market capitalisation, said on Monday it would raise A$750 million ($488.1 million) in an Additional Tier 1 (AT1) capital transaction.

The notes will be issued at $A100 each and potential investors have been told the interst margin be between 3.10% and 3.3%, according to a Westpac statement.

The final margin will be set during a bookbuild which will run for a week from Monday and the bank has the option to increase or decrease the size of the offer.

Australia's prudential regulator said in September it would review the rules around AT1 bonds, which were impacted by the collapse of Credit Suisse in March, to determine they were still fit for purpose.

The AT1 bonds are used by banks to stabilise cashflow in periods of stress, according to APRA.

The bonds became an object of concern to the global financial sector when Switzerland's financial regulator wrote down 16 billion Swiss francs ($17.8 billion) worth of Credit Suisse AT1s following its failure this year.

Under that deal, holders of Credit Suisse AT1 bonds received nothing, while shareholders, who usually rank below bondholders in terms of who gets paid when a bank or company collapses, received $3.23 billion.

Australia's assistant Treasurer Stephen Jones said earlier this year Australian law would not allow AT1 bond holders to be wiped out if a bank collapsed in order for equity holders to receive a return.

Commonwealth Bank, Australia's largest by market capitalisation, raised A$1.55 billion in May in AT1 bonds which was the first issuance of the bonds by a domestic bank down under following the Credit Suisse crisis.

($1 = 1.5366 Australian dollars)

(Reporting by Scott Murdoch in Sydney; Editing by Muralikumar Anantharaman and Stephen Coates)